Coupang: The $5 Billion Startup Filling Amazon's Void In South Korea

It's the top of the third in game three of a best-of-five series in the Korean Baseball Organization playoffs. The home team, Seoul's
Doosan Bears, is up a run and trying to keep the visiting NC Dinos, who have two men on base, from scoring. It's a warm night, and the air is hazy. The aromas of squid balls and fried chicken trail the vendors in the aisles. Bom Kim has amazing seats just a few rows behind the Dinos' dugout, but he's fixated on his smartphone.

"Eric Th... Thames from Pepperdine," he says, translating the name off the scoreboard. The Dinos' burly first baseman digs in at home plate. Kim is reciting stats off his Wikipedia page: "The first player in KBO history with 40 homers and 40 steals... drafted 219th by the Toronto Blue Jays in 2008... stopped in Seattle, Baltimore and Houston."

Thames raps a lazy fastball up the middle. Kim finally looks up from his phone. A runner scores, and the away crowd launches into rapturous song and a coordinated dance dedicated to their Barry Bonds look-alike, a sight that puzzles Kim, who hasn't been to a KBO game in years. He's more of a Red Sox fan.

The distinction is academic anyway, because Kim is almost always occupied round the clock as the CEO of Coupang, South Korea's fastest-growing e-commerce site of all time. It's the closest thing the country has to
Amazon.com--and in several key ways it's better. Coupang and its founder, Kim, are a big reason Jeff Bezos will continue to avoid the country and its 51 million people. The six-year-old startup grossed about $300 million in 2014, a figure that will likely quadruple for 2015 when full-year numbers are reported later this month. Last June the company raised $1 billion at a $5 billion valuation in a round led by Japanese telecom firm SoftBank, which hit pay dirt betting early on Alibaba. SoftBank thinks it can do it again with Coupang.

Kim's estimated 19% stake in Coupang is worth $950 million. He'll be a billionaire soon, barring disaster or recession. Scoring that well is a rare feat in a country where wealth is concentrated in the hands of chaebol family conglomerates. Kim's story is in many ways like that of itinerant ballplayer Eric Thames. Both gave up uncertain careers in the U.S. to become megastars in Korea. Kim, though, is the native son. And talk of wealth bothers him. When asked about it, he refocuses the conversation on Coupang: "This is a huge market opportunity, and it's completely overlooked. Amazon isn't even doing what we're doing now."

On-demand commerce, same-day delivery, instant gratification. Call it what you will, but it's the customer-pleasing, margin-crushing chimera that Amazon is chasing like mad. Coupang is already making same-day the norm. Amazon is using a variety of outside contractors, experimenting with an Uber-like driver network and floating the idea of using drones to shrink deliveries from days to hours. Even so, same-day shipments from Amazon are available in only 27 metropolitan areas.

In two years Coupang has built a last-mile delivery network of customized trucks, algorithm-controlled warehouses and 3,600 "Coupangmen" who deliver goods and chat up customers. For South Korea, where the average package takes two or three days to arrive at a customer's door, Coupang can get most of its orders to a shopper's front steps in a day or less at no extra charge. You can cancel an order that's already on its way or change a package's destination at the last minute. Try that with Amazon.

Where Amazon has dallied, Kim has been decisive. But the downside to his mad dash to shrink delivery times to a day or even an hour has generated serious doubt. One analyst jokingly likened Coupang to ISIS for the way it terrorizes rivals with unsustainable practices. "It's a red ocean," says Hyundai Securities' Keun Jong Kim. In late April, Coupang reported 2015 losses of $465 million, much higher than the $325 million loss anticipated by local media.

Bom Kim disregards the chatter. Koreans are unfamiliar with startups, Kim says, adding that if his company is built correctly it can surpass Gmarket and Auction Co. (both owned by
eBay) as the nation's largest shopping site. "I don't think people are used to the scale and long-term thinking. They will misinterpret what we're doing, but that's okay as long as our customers are benefiting."

IT'S EASY FOR AMERICANS to forget that Amazon is less than a giant abroad, operating in only 13 countries. One that's missing is South Korea, and if you could invent the ideal nation for online commerce, it would look very much like The Land of the Morning Calm: wealthy, wired and dense. It trails only Japan in GDP per capita in Asia, and almost everyone has a smartphone on a high-speed network. About half the population lives in the greater Seoul area, making for simpler logistics. As a result, 15 cents of every retail dollar in South Korea is spent online, according to Euromonitor. In the U.S. it's a little more than 9 cents.

So why hasn't Jeff Bezos turned his attention here? Amazon has focused instead on more populous nations like Japan (with some success), China (a complete disaster) and India (still a work in progress, with $2 billion invested there). "When I was at Amazon we talked constantly about Korea," says Henry Low, Amazon's former vice president of operations in China, who now leads global operations for Coupang. "But we were having such a challenge trying to grow in China that there were not enough resources, and it was always 'Not now, not now.'" (An Amazon spokesperson declined to comment for this story.)

Bom Kim's path to seizing the opportunity left open by Amazon's absence has been roundabout, to say the least. He was born in Seoul but left Korea at the age of 7 with his father, who worked abroad for Hyundai. At 13, he went to boarding school in Massachusetts, where he subsisted on a steady diet of New England Patriots and Red Sox games. He lettered in varsity wrestling and track and kept good enough grades to get into Harvard.

Kim got hooked on the media business at first. He interned at the New Republic and started a student magazine called the Current, which Newsweek took over a year after Kim graduated in 2000. In 2006 Kim raised $4 million for a Vanity Fair -inspired Harvard alumni magazine named 02138, but it folded under the 2008 financial collapse.

Kim tried Harvard Business School in 2010 but lasted only a year. "I knew I wanted to start something in commerce [in Korea]," he says, having spent several summers there and some time studying at Seoul National University prior to his M.B.A. attempt. Groupon's daily-deal model was the hot thing at the time, and "it was easy to get funded," says Kim. He moved back to Seoul to create what was to be the nation's 30th Groupon clone. In order to make it easier to raise money from American investors, Kim registered it as a limited liability corporation in the U.S. He spent close to $1 million on ads, becoming Facebook's top advertiser in South Korea. At one point every Korean on Facebook was seeing 72 Coupang ads a month.

But daily deals, as Groupon discovered, are a lousy business model, with low customer retention. When FORBES first talked to Kim in the summer of 2013, he had maneuvered Coupang away from one-off deals to become an eBay-style marketplace. At the time, Kim had begun experiments with taking on "first-party" inventory, and handling the sale and fulfillment of goods in-house, but Coupang still relied heavily on third-party sellers that packed and shipped their own items.

Two years later I visited South Korea to find that Coupang had changed again. It had raised $400 million from the likes of Sequoia Capital and BlackRock to double-down on its own inventory, with the goal of getting high-frequency goods like diapers, bottled water and rice to customers as quickly and cheaply as possible. With the newer infusion of SoftBank money in June, the company was able to commit $1.3 billion to further its logistics infrastructure, which already consists of 21 warehouses, a fleet of trucks and an army of Coupangmen. The investment, Kim says, will pay off when customers, accustomed to fast delivery speed, order more over time. "We can't bend the customers to what we want," says Kim, "but we can bend ourselves to what the customers want."

HAK-YONG CHOI IS getting ready for his morning truck route out of Incheon, Korea's transport-hub city southeast of Seoul. Coupang has built a new warehouse here that's about 1 million square feet, or the size of 15 soccer fields. At a separate regional distribution center, Choi, a 32-year-old Army vet in a blue polo shirt and Coupang snap-back cap, is shoeless to keep his truck spotless while packing it with boxes. He and 89 other drivers will deliver about 120 packages each during their ten-hour shift, moving along routes fed to an app on their smartphones.

Coupang has 3,600 Rocket Delivery drivers in all, and they're as much a marketing tool as anything else. Drivers hand out balloons and candy to children, politely talk to customers and text them reassuring photos of dropped-off packages. At one stop at an industrial apartment complex, Choi pauses to take out a felt-tip marker and draw a cartoon on the box of a character straining his back while bending down to pick up a package. "We are men, not heavy," he says in broken English. "Customer is woman. Heavy!"

The company's target demographic--mothers--has come to trust the Coupangmen, whose net promoter score of 97 out of 100 is unheard of compared to that of independent contractors hired by external logistics firms, which pay their workers based on the number of packages delivered. That can lead to rushed and cold encounters, says Kyuri Kim, a university student. "The Coupangmen system has added a whole new personal element to the shopping experience," she adds. Joodong Yang, a startup entrepreneur, says that even though Coupang may not have the cheapest prices he is willing to pay a little extra for its convenience and the friendliness.

The over-the-top service, imported from the U.S., has helped Coupang run circles around South Korea's online commerce leader, Gmarket. Coupang's head of marketing is Darrin Shamo, an 11-year veteran of Zappos, whom Kim talked into moving to Seoul with his wife and three kids last year. Shamo is one of more than 200 non-Koreans--among them former Amazon execs, consultants and Silicon Valley engineers--brought in to apply a Western perspective to building a commerce startup. Coupang has hired an army of translators to follow its executives and serve as mediators for Korean employees. Chief Technology Officer Jim Dai, who previously built logistics software for Siebel, came to Korea following Coupang's acquisition of his startup and says he can't even read the company's website or mobile app. No matter: Good code is understood across borders. It's Dai's software that courses through Coupang's delivery chain and allows it to be the fastest in Korea yet nimble enough to process delivery changes and returns left at customers' doors. Coupang's algorithms also inform staff which goods to move where so that the most frequently purchased items at any given time are closest to the pickers.

With sales of its own inventory up sevenfold in 2015 to a $1.5 billion annual run-rate, Coupang's first-party retail division will overtake its marketplace business in the next couple of years at its current pace. Kim says the intention was always to move to the Amazon model, but he's not wedded to any business plan. He encourages executives to understand the missteps of competitors--every key hire is given a copy of The Everything Store, a book on Amazon--and he's compared Coupang to the ancient Mongol empire in meetings. Genghis Khan conquered lands from the Far East to Europe because he was willing to adapt the way his armies fought, says Kim: "Whatever it took to win battles, they did, and whatever it takes to win customers' hearts, we will do."

BOM KIM'S OFFICE IN Seoul's Gangnam neighborhood is fairly free of typical CEO tchotchkes, but the one that's most meaningful to him is a slightly deflated ball signed by New England Patriot coach Bill Belichick. "He's a man of few words," says Kim. "And he just wins."

Like Belichick, who is mostly reviled by anyone not from Boston, Kim has cultivated an us-versus-them mentality that leads to some people working more than 80 hours a week in a relentless drive to provide better service and products than competitors--who have clearly taken notice.

According to reports, the CEO of
Shinsegae, the department store conglomerate that checked Walmart's Korean expansion plans a decade ago, told his internal staff that Coupang was taking away his customers. "We must not lose customers to Coupang," said Shinsegae billionaire Chung Yong-Jin. "Why are we ignoring this and not confronting the issue?"

Local freight companies spurred a government inquiry into Coupang's use of trucks without delivery licenses; it was later dismissed. In September parliament called Coupang to appear at a hearing with other online retailers and questioned the company about the possible coercion of vendors. Kim skipped the meeting because of a torn Achilles tendon sustained in a pickup basketball game and sent the company's head of public policy, a move which drew swift rebukes from the press, who saw his absence as a cop-out to tough questions. "I didn't think it'd be appropriate for me to show up like this," he says, pointing to a giant boot on his foot.

Another tough question is when--or how--Coupang plans to turn a profit. Kim declined multiple times to discuss the company's unit economics, noting only that the company had been cash-flow positive prior to committing $1.3 billion to Rocket Delivery.

Up to now Coupang's smart logistics and giant mobile footprint (more than half of the 51 million people in South Korea have downloaded its app) have created a big enough moat to persuade investors to continue funding the expansion. "If I am getting into the market, I need to ask what kind of infrastructure do I need off the bat," says SoftBank Vice Chairman Nikesh Arora when asked about any potential challenge from Amazon. "The more you can add, the harder it gets for people to compete with you." In 2014 Diego Piacentini, Amazon's then-head of international operations, all but admitted this to The Economist, saying, "The cost to be a relevant e-commerce player [in Korea] would be too high."

It's fine to keep people out, but where does Coupang go once it has conquered South Korea? Alibaba and Rakuten rule China and Japan, respectively. The company's investors believe that Korea is a large enough opportunity. "We've had zero discussions at Greenoaks about how Coupang can sell into other countries," says Greenoaks Capital's Neil Mehta, who sits on the board. He can think of other businesses Coupang could get into, such as using its warehouses to pack other companies' merchandise much the way Amazon does with its "Fulfillment by Amazon" program.

Kim says he has better things to do than peer over his shoulder for Amazon. He has an early lead at dominating one of the world's brightest e-commerce markets: "It's only the top of the first inning."

With reporting from Grace Chung.

Update at 3:15 a.m. on April 28, 2016: The above article has been updated to reflect Coupang's self-reported 2015 financial results, which were revealed after this story's initial publication. The company reported 2015 losses of $465 million.

I'm a San Francisco-based reporter covering the agitators in technology and e-commerce. I started at Forbes as a member of the wealth team, putting together the magazine's well-known World Billionaires and Forbes 400 lists. I've worked at a number of publications including T...